Following layoffs and executive shuffles, Intel reported a third quarter profit Tuesday of $1.3 billion, beating analysts’ estimates, but still falling far short of its results last year.
The company reported revenue of $8.7 billion, thanks in large part to the sale of 6 million of its new Core Microarchitecture chips for notebook PCs and servers. That generated earnings of 22 cents per share, stronger than the prediction of 18 cents per share earnings on revenue of $8.62 billion, according to analysts polled by Thomson Financial.
The numbers were down 35% compared to Intel’s profit in the third quarter of 2005, and down 12% compared to past revenue. In the same quarter last year, Intel earned 32 cents per share on revenue of $9.96 billion.
Intel Chief Executive Paul Otellini admitted in April that the company would miss its annual earnings target as it lost market share to rival AMD while worldwide PC growth slowed.
Since then, he laid off 10,500 people in September, shrinking the company by 10 percent in the culmination of a six-month reorganization that included an executive shuffle, the dismissal of 1,000 middle managers, and the sale of two business units. He also accelerated the launch of the Core 2 Duo family of chips, as well as the “Tulsa” and “Montecito” Itanium server chips. He also pulled the launch date for the earliest quad-core chips into November instead of the first quarter of 2007.
Core 2 Duo and quad-core will help drive better results next quarter, Otellini said during a conference call with investors. Intel has now begun shipping the quad-core version of its Core Microarchitecture chips and expects growing revenue from its vPro technology bundle for business desktops, he said.
Another driver will be the corporate reorganization, which is already near its goal of “making Intel a more nimble and efficient competitor,” Otellini said.
Yet the reorganization also had a downside, as Intel paid charges of $98 million in severance and benefits for the terminated employees, CFO Andy Bryant said on the call. He balanced those charges with $130 million in sales of several business units and $100 million from selling some of the company’s position in Micron Technology.
Intel was also hurt by a slump in chip prices as it struggled to clear older processors, including the Pentium brand, from store shelves and to compete with strong offerings from AMD. Its sales of flash memory units also fell.
Intel took refuge from those disappointments in strong sales in the server market, where its “Woodcrest” Xeon 5100 chip has risen to a 40% market share since launching in June, and its Itanium 2 chips have gained market share from Sun’s Sparc and IBM’s Power chips, Otellini said.
Still, the future holds new challenges, as the company builds a new microarchitecture on 65-nanometer process technology and begins to produce chips on an even smaller, 45-nanometer process by the second half of 2007.
Intel expects to collect fourth-quarter revenue of $9.1 billion to $9.7 billion, compared to an analysts’ estimate of $9.46 billion. Anything in that range would fall short of the company’s performance last year, when it posted revenue of $10.2 billion for the fourth quarter of 2005.
